Nvidia's Earnings and Big Tech Market Dynamics

Nvidia's solid earnings signal ongoing AI investment opportunities, despite rising expectations and market volatility.

### Nvidia's Impact on Big Tech and Market Outlook
* 📉  Despite Nvidia's recent decline, its significant influence on the S&P and Nasdaq remains, with benchmarks still showing an **8% weighting**.
* 📈  Nvidia's latest earnings report was positive, but the excitement is waning as "**the hurdle rates are getting higher**," making it harder for companies to meet expectations.
* 🔍  The market is shifting focus towards the **future performance of big tech**, with macroeconomic factors and potential Fed rate cuts influencing **investor sentiment**.
* 💡  A diversified approach to technology stocks is suggested, as the equal weight of tech in the S&P 500 stands at **30-40%**, indicating a **balanced investment strategy** is prudent.
* 📊  The broader stock market is becoming more appealing, with sectors like **consumer staples, healthcare, and utilities** performing well, especially as GDP grew by **3% in the second quarter**.
* 🚀  Nvidia's quarterly revenues are showing a **4% upside surprise** against expectations, highlighting the **volatility and high standards** that big tech must meet.
* 🏗️  The ongoing investment in AI infrastructure by major companies like Microsoft and Amazon suggests that **opportunities in AI remain strong**, despite the need for **resetting high expectations**.
* 📅  Overall, while the AI investment cycle appears intact, periods of **high expectations** may lead to necessary adjustments before stocks can **rise again**.

Who would have thought it? With all of the hand-wringing that Nvidia is so important to the S&P, to the Nasdaq, 8% weighting benchmarks are higher, even though the name is down. Yeah, you know, beginning of the week we kind of said, yeah, move over, Powell, here comes Jensen Huang. And you're really kind of seeing the markets just kind of not really react and Nvidia's earnings last night. And I think it's because earnings were positive, as you mentioned. You know, the wow factor is starting to come down because the hurdle rates are getting higher. It's getting harder to achieve that. But overall, the delivery of profits and outlooks last night from Nvidia were solid. And so I think the market is starting to kind of look forward and say, hey, everything's okay with big tech, we're going to move over the next couple of quarters. Macro is obviously going to be a

concern coming here over the next few weeks. And as we get rate cuts from the Fed later next month. But I think the story in big tech is less homogenous, trading a little bit more focus on, you know, where the payoff for A.I., what's the supply and demand build for companies like Nvidia moving forward? And I think it will likely provide opportunities when we get some of these pullbacks for investors to reassess and maybe look at stocks that got away from them earlier this year. Would you say that Nvidia, I don't want to go into individual names, but would you say at these sorts of valuations when today Apple, Microsoft, Amazon, Google, Tesla are all the top performers in terms of points in the S&P 500? Should you be more in technology with valuations at these levels or are you at the top as you said? Yeah, like equal weight in these companies and in

technology just holding an equal weight is 30-40% of the S&P 500. So, I don't think you need to get over your skis around, you know, extending conditioning in these areas. But when we do see pullbacks in these big tech leaders, this is the time to start looking at them, at least if you've underweighted the area. Our view is that there is a broader group of stocks that are more attractive. They're particularly more attractive as earnings growth expectations are moving higher for areas outside of big tech. The economy seems to be on firm footing. That GDP grew by 3% in the second quarter, and the Fed is likely to start their moves to lower rates over the next few months and few quarters. So, the outlook for the rest of the 493 stocks that aren't the Magnificent Seven are starting to look more attractive. And that's what we're seeing this month. Consumer staples, health care,

utilities, they're all at the top of the charts for four August. And that might be because September is a pretty poor month for the market. And it's a pretty sweet Bloomberg terminal chart over your left shoulder. What is that? That's Nvidia quarterly revenues. That's right. That's right. And here's the chart. If you can see it in the back. It shows the actuals in the estimates starting to get closer. And I think that's why you're seeing a bit more trouble start moving higher even though they had great results last night. So bear with me. I have a chart of my own. Let's bring it up. This is the beat in the quarter relative to expectations. And I think the point is that it was a it was a 4% beat against consensus. Right. 4% upside surprise. Have you ever experienced a quarter like this where everyone is just lost their absolute minds over a single name in a

week where we had central bank speakers left, right, and center, and more economic data than we can fit into a one-hour program. Yeah. No, I mean, I think the last, and you saw that volatility spike in early August. Some of that was the Japan yen carry trade. But I do think expectations are really high in these big tech magnificent names. And so not only do they have to surpass and kind of meet the perfection standards that investors put on it, but they actually need to surpass them by even more. That's getting harder. And so, as my earlier comment said, I think you're going to see more less homogenous trading between some of these big tech leaders. And it's really going to come down to fundamentals and capital spending and revenue outlook. How much are you beating? Those things will play a much more dominant role in moving share prices around. But at the same, it seem, you know, in

the same breath, you have a lot of stocks that have not kept pace with these big tech companies that remain attractive in an environment where we're growing. And so if the Fed is cutting interest rates and they can kind of engineer that soft landing, there's a lot of sectors of the economy that are more attractive today. So let's finish here in aggregate, Nvidia and everything else that you've outlined, do you believe that this cycle of the investment cycle around AI is intact and it continues? Yeah. I think you know, and from your interview with Jensen Huang, I think it's very clear the air infrastructure build and the architecture around that is in the very early innings. Some of these companies like Microsoft, Microsoft, Amazon, Alphabet, they spent almost $60 billion in the prior quarter on AI investment. They said they were going to continue that over the next several quarters. And so as these companies and as you

know, sovereign A.I. that NVIDIA mentioned last night. As these countries start to build that infrastructure, there is a lot of opportunity still left in A.I. However, like the tech boom in the early and late nineties, early 2000, we go through periods where expectations get really high. They need to reset, and then maybe stocks can move higher from there. And I think we're starting to see that now with big tech in the air.

Markets Rise Despite Nvidia's Drop

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Bloomberg Technology

Nvidia's importance to the S&P and Nasdaq is evident, despite its recent decline.

The company's positive earnings and solid outlook have led the market to remain stable, with a focus on the future of big tech and AI.

The upcoming Fed rate cuts and potential pullbacks in tech stocks may provide opportunities for investors to reassess their positions.

Technology stocks hold 30-40% of the S&P 500, but pullbacks in these leaders present opportunities for investment.

A broader group of stocks is becoming more attractive as earnings growth expectations rise and the economy shows strong GDP growth.

Consumer staples, health care, and utilities are leading the market this month, while Nvidia's quarterly revenue beat is causing a stir in the market.

The Impact of Central Bank and Economic Data on Big Tech

Central bank speakers and economic data have created volatility in the market, particularly for big tech companies.

These companies are under pressure to not only meet but exceed high investor expectations, leading to less homogenous trading.

Despite the focus on big tech, there are attractive investment opportunities in other sectors, especially if the Fed cuts interest rates and engineers a soft landing.

The AI investment cycle is still in its early stages, with major companies committing significant resources to AI infrastructure and architecture.

Opportunities and Challenges in AI Infrastructure

NVIDIA highlighted the potential of sovereign AI as countries build their infrastructure.

There is still significant opportunity left in AI, similar to the tech boom in the 90s and early 2000s.

Periods of high expectations followed by resets may lead to a rise in stock prices, and this trend is starting to emerge with big tech now.